ITO 21 (3) (1), MUMBAI V. ROOPA S. SHAH, MUMBAI

ITA 2722/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9816 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 09-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2722/M/2016 ASSESSMENT YEAR: 2011-12 INCOME TAX OFFICER-21(3)(1), 2 ND FLOOR, PIRAMAL CHAMBERS, LALBAUG, MUMBAI - 400018 VS. SMT. ROOPA S SHAH, 2 NEEL SAGAR, NARAYAN POOJARI NAGAR, A.G. KHAN ROAD, WORLI -MUMBAI 400 018 PAN: AMMPS3569G (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI NISHIT GANDHI, A.R. REVENUE BY : SHRI SAURABHKUMAR RAI, D.R. DATE OF HEARING : 25.07.2017 DATE OF PRONOUNCEMENT : 23.08.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 01.02.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2011-12. 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSE E AN INDIVIDUAL IS ENGAGED IN THE BUSINESS OF COMMODITY EXCHANGE BROKING REGIS TERED UNDER NCDX AND MCX. THE ASSESSEE IS ALSO A DIRECTOR IN THE COMPANI ES LIKE M/S. MAHSHREE ENTERPRISES P. LTD., M/S.RUPASHREE FINVEST PVT, LTD AND M/S.NOPEA CAPITAL SERVICES PVT. LTD. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) OBSERVED THAT T HE ASSESSEE HAS DECLARED BUSINESS TURNOVER OF RS.1983,25,31,965/- WITH MARGI N AT 0.01% I.E, RS.15,53,448/- AS PER TAX AUDIT REPORT. ON PERUSAL OF THE P & L ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAS BIFURCATED THE SAID A MOUNT OF RS.15,53,448/- INTO TWO PARTS I.E. SHORT TERM CAPITAL GAIN OF RS.9,43,0 06/- AND BROKERAGE INCOME ON COMMODITY BUSINESS RS.6,10442/- STATING THAT THE TW O ITEMS ARE IN RESPECT OF ITA NO.2722/M/2016 SMT. ROOPA S SHAH 2 THE BROKING BUSINESS IN TWO DIFFERENT STOCKS IN TRA DE, ADMITTEDLY SOLD BY HER VIZ. SHARES AND COMMODITIES. HENCE, THE ENTIRE AMOU NT OF RS.15,53,448/- IS ADMITTED TO HAVE BEEN TREATED AS BUSINESS PROFIT BY THE ASSESSEE. ON PERUSAL OF THE P & L A/C., THE AO HAS FURTHER NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.159,589/- UNDER THE HEAD LEASE LINE & NETWORK ING EXPENSES. WHILE THE ASSESSEE HAS SHOWN COMPUTERS AND HARDWARE IN THE FI XED ASSETS, THIS ITEM WAS NOT SHOWN. ON VERIFICATION OF THE P & L A/C OF THE PRECEDING YEAR, IT IS FOUND BY THE AO THAT THE ASSESSEE HAD NOT INCURRED ANY SU CH EXPENDITURE. ACCORDINGLY, THE AO CONCLUDED THAT THE LEASELINE AN D NETWORKING EXPENDITURE ARE NEITHER A RECURRING EXPENDITURE NOR REVENUE EXP ENDITURE BUT OF CAPITAL IN NATURE FOR THE PURPOSE OF GENERATING REVENUE. ACCOR DINGLY, THE EXPENDITURE OF RS.1,59,589/- IS DISALLOWED AS CAPITAL EXPENDITURE IN THE NATURE OF 'HARDWARE ASSET' SUBJECT TO DEPRECIATION AT 15%. SIMILARLY, T HE AO HAS DISALLOWED CABLE EXPENSES OF RS.12,829/- WHICH IS OF SIMILAR NATURE. THUS, THE TOTAL CAPITAL EXPENDITURE ON THE ABOVE ACCOUNT OF RS.1,72,418/- M INUS 15% DEPRECIATION OF RS.25,863/- VIZ. RS.1,46,555/- IS ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 3. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS ALLOWED THE CLAIM BY OBSERVING AS UNDER: 7.1 I FIND THAT THE AO HAS MADE THE ADDITION ON OB SERVING THAT THE APPELLANT HAS TAKEN AN INTEREST FREE 'TENANCY DEPOS IT' OF RS.2,50,00,000/- FOR LEASING OUT THE OFFICE PREMISES TO A RELATED COMPAN Y MIS. ARYAMAN FINANCIAL SERVICES LTD. WHICH WAS NOT REQUIRED TO PAY ANY REN TAL AS PER THE LEASE AGREEMENT. ACCORDING TO THE AO, THE APPELLANT IS A PROTECTED TENANT WHO IS ENJOYING LONG TENANCY RIGHT FOR AN INDEFINITE PERIO D. THEREFORE, SHE IS DEEMED TO BE OWNER OF THE PROPERTY AS PER SECTION 27(III) & (III)(B) R.W.S.269UA(F). AFTER TREATING THE APPELLANT AS DEEMED OWNER OF THE PROPE RTY LEASED TO M/S. ARYAMAN FINANCIAL SERVICES LTD, THE AO INVOKED THE PROVISIONS OF SECTION 22 TO 24 AND ESTIMATED THE DEEMED RENT AT RS.37,50,000/- @ 1 5% OF THE DEPOSIT RECEIVED. 7.2 ON APPRECIATION OF THE FACTS AND EVIDENCES ON R ECORD, I FIND THAT THE APPROACH OF THE AO IN TREATING THE APPELLANT AS DEE MED OWNER OF THE LEASED PROPERTY AS FACTUALLY AND LEGALLY INCORRECT. IT IS OBSERVED THAT THE APPELLANT IS A TENANT OF THE SAID PROPERTY, AND PAYS RENT ON MONTH ON MONTH BASIS ON ISSUANCE OF RENT RECEIPTS. DURING THE YEAR, SHE HAS PAID MONTH ON MONTH RENT OF RS.800/-. DURING THE APPELLATE PROCEEDINGS, A COPY OF THE AGR EEMENT FOR TENANCY WAS ITA NO.2722/M/2016 SMT. ROOPA S SHAH 3 SUBMITTED WHICH CLEARLY SHOWS THAT THE APPELLANT WA S LIABLE TO PAY RENT ON A MONTH TO MONTH BASIS. 7.3 IN THIS REGARD, I AGREE WITH THE APPELLANT THAT SHE IS NOT A OWNER OF THE PREMISES IN VIEW OF THE PROVISIONS OF SEC. 22 OF TH E I.T. ACT SINCE AS PER SECTION 27(IIIB) RWS 269UA(F), A PERSON WILL BE DEE MED TO BE OWNER IF HE ACQUIRES A RIGHT IN ANY IMMOVABLE PROPERTY BY WAY OF SALE OF , EXCHANGE OR LEASE FOR A TERM NOT LESS THAN 12 YEARS AND IT INCLUDES ALLOWING THE POSSESSION OF SUCH PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTR ACT AS REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT. IN THE CASE OF THE APPELLANT, THERE IS NO AGREEMENT FOR THE SALE OF THE PROPERTY SO THAT THE PROVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT CAN BE APPLIED. THE APPELLANT HAS ONLY ACQUIRED THE TENANCY RIGHT BEING A TENANT IN ACCORDANCE WITH THE TERMS AND CON DITIONS OF THE TENANCY AGREEMENT. 7.4 IT IS FURTHER OBSERVED THAT THE RELIANCE OF THE APPELLANT ON THE JURISDICTIONAL ITAT DECISION IN THE CASE MAHENDRA K. GHELANI IS IN ORDE R AS HON'BLE TRIBUNAL HAS CLEARLY HELD WHILE DISCUSSING THE PROVISIONS OF SECTION 27( III) & (IIIB) THAT INCOME FROM HOUSE PROPERTY CAN BE TAXED ONLY IF THE ASSESSEE IS THE OWNER OF THE PROPERTY. AT THE SAME TIME I FIND THAT THE DECISION RELIED UPON BY THE AO I.E., IN THE CASE OF TIVOLI INVESTMENT & TRADING CO.(P) LTD V. ASSTT. CIT 139 T TJ 520 (MUM.TRIB) IS NOT APPLICABLE SINCE THE FACTS ARE CLEARLY DISTINGUISHA BLE. 7.5 APART FROM THE ABOVE, I FIND THAT OTHERWISE ALS O THE STAND TAKEN BY THE AC FOR APPLYING CONCEPT OF 'DEEMED RENT' TREATING THE APPE LLANT AS DEEMED OWNER IS NOT APPLICABLE TO THE FACT OF THE INSTANT CASE. IT IS A N UNDISPUTED FACT THAT AS PER THE LEASE AGREEMENT WITH M/S. ARYAMAN FINANCIAL SERVICE S LTD., THE APPELLANT HAS RECEIVED A SUM OF RS.2,50,00,000I- AS INTEREST FREE 'TENANCY DEPOSIT' FOR LEASING OUT THE SAID OFFICE PREMISES. FURTHER, THE LEASE AGREEM ENT CLEARLY PROVIDES THAT THE TENANT M/S.ARYAMAN FINANCIAL SERVICES LTD WAS NOT R EQUIRED TO PAY ANY RENT FROM MONTH TO MONTH, EXCEPT FOR THE SAID INTEREST-FREE D EPOSIT TO THE APPELLANT. I FIND THAT THIS IS NOT A CASE WHERE THE APPELLANT HAS HAN DED OVER THE PREMISES TO THE COMPANY WITHOUT ANY PECUNIARY BENEFIT THAT DESERVED ESTIMATION OF DEEMED RENT. IT IS CLEAR THAT AN INTEREST FREE DEPOSIT OF RS. 2. 50 CRORE WAS RECEIVED IN LIEU OF MONTHLY RENTAL. IN THIS REGARD, I AGREE WITH THE AP PELLANT THAT THE INTEREST FREE DEPOSIT WAS USED BY THE APPELLANT FOR FURTHER INVES TMENT IN SECURITIES AND GENERAL BUSINESS PURPOSES AND THE REFLECTED IN THE BOOKS OF ACCOUNTS AS ASSETS. IT IS ALSO CLAIMED THAT THE INCOME EARNED FROM THESE INVESTMEN TS ARE DECLARED IN THE INCOME TAX RETURNS AND DUE TAX PAID. IN THE AY 201112 IN A DDITION TO NORMAL BUSINESS INCOME, THE APPELLANT HAS ALSO SHOWN CAPITAL GAINS INCOME OF RS. 39,06,388, DIVIDEND INCOME OF RS. 3,20460 AND INTEREST INCOME OF RS. 1,99,334!- WHICH WHEN ADDED WOULD EXCEED THE ADDITION MADE BY THE AO ON T HIS COUNT. 7.6 CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES OF THE ISSUE INVOLVE, I FIND NO MERIT IN THE ADDITION MADE BY THE AO. HENCE , THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.37,50,000/- MADE AS DEEMED RENT, TO THE TOTAL INCOME OF THE APPELLANT. THUS GROUND NO. 2 IS ALLOWED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. WE HAVE ALSO ITA NO.2722/M/2016 SMT. ROOPA S SHAH 4 GONE THROUGH THE ORIGINAL TENANCY AGREEMENT WITH OR IGINAL OWNER. THE ASSESSEE IS A PROTECTED TENANT. THE ASSESSEE IS PA YING RENT TO THE ORIGINAL OWNER. THE PROTECTED TENANT HAS LEASED OUT THE SAI D OFFICE PREMISES TO ARYAMAN FINANCIAL SERVICES LTD. AND RECEIVED A SUM OF RS.2,50,00,000/- AS INTEREST FREE TENANCY DEPOSIT FOR LEASING OUT THE S AID OFFICE PREMISES. THE LEASE AGREEMENT CLEARLY PROVIDED THAT TENANT ARYAMAN FINA NCIAL SERVICES LTD. WAS NOT REQUIRED TO PAY ANY RENT FROM MONTH TO MONTH EX CEPT THE SAID INTEREST FREE DEPOSIT TO ASSESSEE. ASSESSEE HAS INVESTED THIS IN TEREST FREE DEPOSIT FOR FURTHER INVESTMENT IN SECURITIES AND GENERAL BUSINESS PURPO SES AND HAS REFLECTED IN BOOKS OF ACCOUNT AS ASSETS. WE FIND THAT AS PER TH E DECISION OF ITAT IN THE CASE OF MAHENDRA K. GHELANI WHEREIN THE TRIBUNAL HA S HELD THAT INCOME FROM HOUSE PROPERTY CAN BE TAXED ONLY IF THE ASSESSEE IS AN OWNER OF THE PROPERTY. WE ALSO FURTHER GET THE SUPPORT FROM THE DECISION O F HONBLE MADRAS HIGH COURT IN THE CASE OF IN THE CASE OF CIT VS. A.V.K. CONSTRUCTIONS P. LTD. [2007] 292 ITR 512 (MAD) WHEREIN THE HIGH COURT HAS ALSO T AKEN A SIMILAR VIEW. MOREOVER, WE FIND THAT ASSESSEE HAS LEASED OUT THIS PROPERTY ONLY FOR FIVE YEARS AND THE LICENSE AGREEMENT ENDS AT THE END OF FIVE Y EAR LEASE PERIOD AND ASSESSEE HAS TO HANDOVER THE POSSESSION. THEREFORE, WE ARE OF THE VIEW THAT LD. CIT(A) IS JUSTIFIED IN HIS ACTION. WE ALSO GET THE SUPPOR T FROM THE DECISION OF ITAT IN THE CASE OF WINDMILLS SECURITIES VS. DCIT IN ITA NO .3645 & 3546/M/2008 WHEREIN IT HAS BEEN HELD THAT IF THE ASSESSEE SUBLE T THE PROPERTY, THE INCOME CANNOT BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE ARE OF THE VIEW T HAT LD. CIT(A) IS JUSTIFIED IN HIS ORDER. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.08.2017. SD/- SD/- (RAJESH KUMAR) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23.08.2017. * KISHORE, SR. P.S. ITA NO.2722/M/2016 SMT. ROOPA S SHAH 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.